Profitt Report: What to do if you're laid off
Not long ago, we learned that the Dow Chemical Company, based in Midland, plans to restructure and lay off four percent of its work force between Dow and Dow Corning. In September, nearly 350 mid-Michigan employees were laid off as a result.
This scenario isn’t unique to Midland, we see it happen all over the country.
“I’m not one of those cases, I guess I’m fortunate,” said Bob Newman of Midland. He worked at Dow for 33 years and four months and decided to retire just before news of Dow’s restructuring plan. However, that didn’t necessarily make the decision any easier for him or his wife Sue.
“I’m comfortable [with retirement], she's still adjusting,” Bob said. “I enjoyed my work but things like this were approaching, the restructuring and so things just started to slow down,” he said.
Retirement can be a tough decision for anyone and if you learn your company plans to restructure, early retirement might be an option according to the experts at Great Lakes Investment Advisors in Midland.
“Those folks that are maybe one to three years from when they're thinking they might want to retire, this could be a great time to step back and reevaluate. Is this really a golden opportunity to move into retirement sooner than they thought?” said Jason Cryderman, owner and investment advisor with Great Lakes Investment Advisors.
However, what if you’re not in a position to retire? Cryderman said some basic rules apply to anyone in this situation. First, take a close look at your budget and trim the fat. Stop spending money on anything you don’t need.
“It is a very stressful time, definitely a time when we try to stress, don't make any fast decisions,” he said.
Cryderman said if you aren’t planning to retire, need some income and you’ve built up an emergency fund, now is the time to use it. However, only spend that money on your daily living needs.
Next, look at how to supplement that income you lost. It might be a new job; it might be pulling money from one of your investments.
“How much do we need per month and what sources of income do you potentially have? What investments do you have out there that could be potential sources?” Cryderman said.
If you aren’t in a position to retire just yet, Cryderman said to avoid dipping into your retirement savings.
Here are guidelines from Great Lakes Investment Advisors, Inc.:
5 Income Replacement Rules To Help Keep You Afloat
Most people work to provide for their family and with any luck, to retire some day. It’s the unfortunate reality of corporate restructuring that can put a royal kink in their plans for financial freedom. But they shouldn’t get discouraged, below are five income replacement rules that can help keep them afloat and steer their financial lives back on course.
Rule #1: Cut the Fat From Your Budget
This rule may seem like “common sense” but it’s critical to someone’s financial success when the next paycheck is still “To Be Determined.” When a job loss or transition into retirement occurs a person should automatically start cutting the fat from their budget. Now is the time to have a serious budget discussion and sort ALL expenses into “Needs” “Wants” categories. Even though the “Needs” won’t be as easily to trim down, they should still be evaluated, as any small expense trimming can add up to a leaner budget. With regard to the “Wants” - cut back or even go without for a certain period of time.
Rule #2: Thoughtfully Plan Your Severance
There are several severance considerations one should make. First, verify the total amount. Will it be in the form of a lump sum or several payments overtime? Next, determine if this income will be needed to cover living expenses. If so, how long will it last? It’s important to note that managing a lump sum of money can sometimes be a difficult thing to do for those who need it to last as long as possible. It may be worth asking to take the severance in monthly installments. If this isn’t an option, consider creating a withdrawal plan with a professional. If severance isn’t needed to cover living expenses, consider delaying it to avoid a higher income tax bracket.
Rule #3: If You Have an Emergency Savings, Now is the Time to Use It Unless You Are Retiring
If you’ve been laid off and need money to cover basic living expenses, this is the time to use emergency savings. Just like a severance, keep a close eye on how much and how often the funds are being utilized, remember they are for emergencies (the Needs in life) not the luxuries. For those who are considering an early retirement, their emergency savings should be left alone. Everyone should work to build an emergency savings. A good rule of thumb is to have at least three to six months worth of living expenses saved in a no-fee, no-risk, 100 percent liquid account.
Rule #4: Avoid Using Funds From Your Retirement Savings Account Unless You Are Retiring
Monies that are earmarked for retirement should be left untouched. If someone is under the age of 59 1/2 and withdraw monies from their retirement plan they will be subject to additional income tax (and possibly a higher tax bracket) plus a 10 percent early distribution penalty. However, drastic times call for drastic measures, and if their emergency savings has been tapped and all they have left is their retirement savings, they may want to consider a hardship distribution or a loan from their 401(k). There are also some ways to potentially access an IRA and 401(k) accounts prior to age 59 1/2 and avoid penalties, such as a 72(t), and for those who are at least 55 years old, there are some penalty-free exceptions as well.
For those retiring or who are changing jobs with a new retirement plan offering, typically their money should leave their former employer’s retirement plan. There are many potential advantages and benefits of rolling money over into an IRA. For starters, no additional expense or tax on the rollover event. The account holder has greater control on how monies are invested, meaning more options, potentially higher quality of investments, personalized advice and management, and potential tax advantages on distributions. Keep in mind, depending on your individual situation there may also be benefits to consider by simply leaving your money in your current account.
Rule #5: Know Where You Are in Life, Retirement May Be Possible
Income replacement really comes down to what stage of life someone is in. For example, early retirement is more than likely not a plausible strategy for younger workers. They should really be focusing on finding another job and pinching pennies until they are able to secure one. However, if someone is ten years or less from retirement, there is a possibility that they can afford to retire depending on their savings, assets, severance package, and so on.
Whether someone is transitioning into a new position or an early retirement, it’s imperative that they consult a financial professional who can provide them with personalized guidance based on their unique financial situation. When it comes to finances, there is no “one size fits all” solution.
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